What are we to make of Obama’s “grand bargain”? My initial reaction to the news that Obama was putting Social Security and Medicare cuts on the table was despair. What was/is the White House thinking? Obviously, no one outside the White House knows for sure, but I think I have a pretty good idea.

As I said in a DM exchange with Mike Konczal on Wednesday night, I think the White House is trying to scare Democrats into accepting a deficit reduction deal with little or no revenue increases. I think Boehner can’t get the votes in the House for a deal that includes any revenue increases, and I think the White House knows it. They know that the final deal will end up being 100% spending cuts. The problem with this is that it might not get enough Dem votes to pass — especially if Dems on the Hill are obsessing about the ratio of spending cuts to revenue increases throughout the negotiations.

So in order to retain enough Dems, the White House needs to make sure that the $2 trillion, all-spending-cuts deal is the “compromise” position. If the alternative is an even larger deficit reduction deal that includes savage cuts to Social Security and Medicare, then plenty of Dems will be downright eager to vote for a deficit reduction deal that doesn’t touch Social Security or Medicare, even if it is 100% spending cuts. If you know that the final deal will be 100% spending cuts, then you don’t want the Dems to make their “line in the sand” the inclusion of revenue increases. By putting Social Security and Medicare on the table, you allow the Dems to make the protection of those programs their “line in the sand,” rather than the inclusion of revenue increases. And that will free enough Dems up to vote for the final, all-spending-cuts deal.

This would also explain why Obama is still saying that he wants a “grand bargain,” even after Boehner said that they should focus on the smaller deal that the Biden-led group had been working on — for the strategy to be effective, the grand bargain needs to continue to be a viable option (that the Dems are afraid of).

Now, we can argue about whether Obama truly wants to strike a “grand bargain” that cuts Social Security and Medicare. I don’t know if he does, and neither do you. (It’s certainly possible that he does, but again, I don’t know.) However, I think that question, interesting though it may be, is ultimately irrelevant. Even if Obama truly does want a grand bargain, there’s simply no way that he thinks they can agree on $1 trillion in tax increases, and an overhaul of Social Security, Medicare, and Medicaid, all in under 2 weeks. Purely as a legislative matter, it’s almost an impossible task, which I’m sure Phil Schiliro would have explained to him. So really, the only way the “grand bargain” makes sense is if it’s a negotiating strategy.

And if this is a negotiating strategy, the best explanation is that the White House is using the threat of Social Security and Medicare cuts to scare Democrats into voting for an all-spending-cuts deal.

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comments:

foosion
said...

If it's just a negotiating strategy, it's an incredibly dumb strategy.

For a Democratic president to put Social Security, Medicare and Medicaid on the table just serves to weaken support for those vital programs.

What's really odd is that the Republicans are more right in the current negotiations than Obama. We need stimulus, not contraction, in the current economic climate. The Rs say don't increase taxes. They're right, doing so is contractionary today. Obama is saying increase taxes and cut spending. Both actions would be contractionary.

Let's wait until unemployment is lower and growth higher before doing more to contract the economy.

Last week the President announced that both sides had to compromise. Since the President had already compromised on everything except tax breaks for corporate jets his announcement was a message to Democrats that they would have to do the compromising.

Self respecting liberals will vote for the Green party or sit out the next election. It's better for liberal causes when Republican policies are passed by Republicans instead of Democrats. At least in that case Republicans get the blame and not Democrats.

It depends on what is meant by "cuts" to Social Security and Medicare. One might favor putting both on a needs-based basis, while increasing benefits to qualified recipients. One might even call this "increasing" those benefits. And, what would you call elimination of unnecessary or duplicative programs and agencies, e.g., the Department of Homeland Security, the Department of Education, or the Department of Energy (among the agencies commonly thought unnecessary)? Or cutting of corporate welfare subsidies, like most of what Department of Agriculture passes out to Big Agriculture under programs that have gone unreformed since the 1930's?

Best Dem/Obama Strategy: to my mind the markets and the American people are not taking any of this seriously. They think that worse case is maybe we're a few days late on a t-bill payment or two .... and then the Dems cave, in some magnitude, in to spending only cuts.

Since the Rep strategy is to leave only dust and charred ashes, Obama should be willing to meet that challenge.

I think he should address the nation in primetime and begin like this, "My fellow Americans, this afternoon I advised my cabinet secretaries and the heads of our independent agencies to prepare their organizations for an indefinite shutdown of all of their agency functions, essential and non-essential...."

He can then go on to recite the litany of research and think tank findings that says it is irresponsible to argue for and that we can't get there from here without revenue increases. Make the case.

The result: the dow jones opens down 1,500 points and trades lower thru the remainder of the session. FF trades at 2% and 10 year treasuries spike 175 bp in the first 10 minutes of trading. Given that 85% of all investment assets in the country are held by less than 5% of the people this should be no problem for most people. layoffs? unemployment? can it get any worse for him? When we get back to the stock market lows (still a ways away) from the 2009 lows, perhaps then we can have a constructive conversation with all interested parties. Until Obama does this he might as well be playing hoops with his brothers, cause nothing constructive is going to happen in this negotiation.

Obama truly sucks. I say this as someone who contributed $1800 last round. he has been a terrible negotiator. Frankly, if this is just about Obama being re-elected, I don't give a damn. Social Security and Medicare are a sacred trust. Screw Obama.

I'm with anonymous at 9:07am. Given Obama's track record of compromising, there's no reason I can think of to accept the argument that he has some master plan in place, rather than that he is simply a horrible negotiator who does not care about liberal priorities (or working class priorities), who has internalized neoliberal economics from the Econ 101 class he no doubt had to take at Columbia before moving on to a law and economics class at Harvard Law School, who clearly values bipartisan process more than outcome.

That is why I am increasingly convinced he will be a one term President, and I say this as someone who has been a lifetime D and who has poured more and more time and resources into every post-Bush/Gore election cycle.

And you know what? I'm increasingly convinced that's not such a bad thing (and I was an ardent "Fuck Nader" guy in 2000). Obama is a sellout, and by wrapping Republican policies under a liberal flag, he is discrediting the efficacy of liberal 20th century policies.

The thing that makes me feel a degree of despair about this whole thing is watching how far the conversation has slid to the right over just the course of his term. How is a hypothetical future Democratic government going to govern?

Now that the mainstream Democratic position is equivalent to that of George W. Bush, and since there is such a long history of abject refusal on the part of Dem politicians to counter Republican economic orthodoxy in any way, how will these insanely damaging economic ideas ever be challenged?

I love all the people who are willing to say "Obama's doing it wrong" while he consistently makes people who say that look foolish in hindsight, unless of course said person rewrites history (say someone who blogs for Firedoglake) to make themselves correct after the fact.

Absolutely correct. When one party sis largely a tool of the wealthiest 1% of the country, and the other is completely so, what else can you expect? We will get cuts targeted at those too poor to buy politicians, no change (at best, possibly a cut) in historically low marginal tax rates, and everyone will go back to raising money for the next election from the only people who really matter any more.

I was disappointed at the compromise. It would have felt more satisfying if President Obama had given them Hell, like Harry Truman. But I think the President felt obliged to do all he could to get an agreement. The present economic mess is the fault of the Republicans, not the President. Spending, whether from businesses or the government, helps the economy. To fund such things as infrastructure repair, we need revenue. The President is right, and the Tea Party types are wrong. They claim to be a grassroots movement, but this is just one of their many lies.

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Obama truly absorbs. I say this as someone who provided $1800 last round. he has been a dreadful negotiator. Seriously, if this is just about Obama being re-elected, I don't give a rattling. Social Security and Medical health insurance are a holy trust. Attach Obama.runescape gold for saleBillig WOW Gold KaufenBuy RS 3 Gold

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I'm a finance lawyer in New York. I used to focus on derivatives and structured finance (you know, back when there was a structured finance market). I spent the majority of my career at one of the major investment banks. My background is in economics and, unfortunately, politics.

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